More than $ 200 billion has been wiped out of the value of the global cryptocurrency market, after the value of bitcoin fell more than 20% in just four days, sounding alarm bells on Wall Street.
Bitcoin prices hit a new all-time high of nearly $ 42,000 on Friday, with the total digital coin market worth around $ 1.07 trillion.
But on Monday, the value of bitcoin had fallen 22% to around $ 31,000, bringing the market to $ 880 million.
However, experts said the sudden drop should be greeted as a “healthy correction,” after the 12-year-old cryptocurrency hit unsustainable, record-breaking prices.
Bitcoin’s value has jumped 900% since March, which Bank of America says could be “the mother of all bubbles”
Bitcoin’s value fell 22% in four days, from $ 42,000 on Friday to $ 31,000 on Monday, wiping out $ 200 million from its value, but experts say this is a healthy reset
This graph shows Bitcoin’s value growth in 2020, a meteoric rise that saw it surpass $ 20,000 for the first time on December 16. It then hit an even higher high of nearly $ 42,000 on Friday, before dropping to $ 31,000 on Monday.
Bank of America strategists warned last week that the rapidly rising price of bitcoin could be “the mother of all bubbles”, comparing it to the tech boom of the late 1990s.
Naeem Aslam, chief market analyst at AvaTrade, said the decline was therefore seen as a welcome “healthy correction”, “due a long time ago,” as reported by CNN.
James Putra, Vice President of Product Strategy for TradeStation Crypto, added: “It’s scary when the price of bitcoin just goes up. This withdrawal was necessary.
Bitcoin first broke the $ 20,000 level in mid-December and climbed above $ 30,000 earlier this month; a huge rebound from a low of just over $ 4,000 as the Covid-19 epidemic caused global financial assets to plummet last spring.
In total, it has jumped more than 900% from a recent low of $ 3,850 in March.
Massive spending on Covid-related stimulus packages had raised fears of rising inflation and a weakening US dollar, and investors were turning to bitcoin as a safe haven.
Prior to the crash on January 5, investment bank JP Morgan said Bitcoin had become a rival to gold and could trade up to $ 146,000 if it became a safe haven asset.
Many experts remain optimistic about the future of digital currency which was invented in 2009 by an anonymous person or group known by the pseudonym Satoshi Nakamoto.
Even with the weekend crash, bitcoin remains up 10% in 2021.
Research produced by the University of Cambridge, UK estimated that there were between 2.9 and 5.8 million unique users using a cryptocurrency wallet in 2017, most of them using bitcoin. .
Cryptocurrency is gaining ground with more traditional investors who are increasingly convinced that bitcoin will be a durable asset and not a speculative bubble as feared by some analysts and investors.
WHAT IS BITCOIN AND HOW DOES IT WORK?
What are Bitcoins?
Bitcoin is a cryptocurrency – a type of online money created using a computer code.
It was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified.
Bitcoins are created without the use of middlemen – meaning no bank takes any fees when exchanging them.
They are stored in so called virtual wallets called blockchains which keep track of your money.
One of the selling points is that it can be used to buy things anonymously.
However, this left the currency open to criticism and calls for tighter regulation, as terrorists and criminals trafficked in drugs and weapons.
How are they created?
Bitcoin is created through a process known as “mining” which involves computers solving difficult math problems with a 64-digit solution.
Every time a new math problem is solved, a new Bitcoin is produced.
Some people create powerful computers for the sole purpose of creating Bitcoins.
But the number that can be produced is limited – which means that the currency must maintain a certain level of value.
Why are they popular?
Some people like Bitcoin because it is a form of currency that eliminates banking intermediaries and the government – a form of peer-to-peer currency exchange.
And all transactions are publicly recorded, so it is very difficult to counterfeit.
Its value surged in 2017 – beating the 17th century “tulip mania” and the dot com boom of the early 2000s to become the biggest bubble in history.
But the bubble now appears to have burst and questions remain about its long-term market.
Some stores and restaurants accept purchases, but overall this is only a tiny part of the real economy market.
Although there are concerns, Bitcoins can be hacked.